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Archive for September, 2007

Lecture of a Lifetime

Today, we take a break from investment. I would like to share with you a lecture that might help you to reflect on your live and your dreams. Here’s the background:

…Continue reading » Lecture of a Lifetime

Giving Reasons for Market Movements

Wise quotes from Warren Buffett:

Berkshire will someday have opportunities to deploy major amounts of cash in equity – we are confident of that. But, as the song goes, “Who knows where or when?” Meanwhile, if anyone starts explaining to you what is going on in the truly-manic portions of this “enchanted” market, you might remember still another line of song: “Fools give you reasons, wise men never try.”

Berkshire Annual Letter 1999 (Part 4)

There are a couple of conditions which must exist for a share repurchase scheme to be meaningful to shareholders.

The company must available funds (cash plus sensible borrowing capacity) that more than meets the near term needs of the business. These needs consists of:

  • expenditures a company must make to maintain its competitive position and
  • optional outlays aimed at business growth.

…Continue reading » Share Repurchases

Every Breath Bernanke Takes

A funny spoof on The Police’s “Every Breath You Take” featuring imitation Dean Glenn Hubbard and Fed Chairman Ben Bernanke.

In a telephone interview by Becky Quick of CNBC, Warren Buffett gives his take on the following matters:

  • Why changes in the Federal Reserve rates doesn’t bother him.
  • What he thinks of the market in terms of the credit crunch.
  • His worries about inflation.

You can listen to the interview or read the complete transcript.

Back in April 2003, Warren Buffett purchased about 10% of PetroChina for US$488 million at less than HK$1.70 a share. With the present share price above HK$11, this investment has turned out into a 6-bagger.

…Continue reading » Warren Buffett Sells Part of PetroChina Shares

Berkshire Annual Letter 1999 (Part 3)

Reported earnings do not accurately measure the economic progress of Berkshire as they include only the dividends received from investees.

These dividends are only a small fraction of the earnings attributable to Berkshire.

…Continue reading » Look-Through Earnings and of Tech Stocks

Buying Scott Fetzer

 More humour from Warren Buffett:

In 1985, a major investment banking house undertook to sell Scott Fetzer, offering it widely –  but with no success. Upon reading of this strikeout, I wrote Ralph Schey, then and now Scott Fetzer’s CEO, expressing an interest in buying the business. I had never met Ralph, but within a week we had a deal.

Unfortunately, Scott Fetzer’s letter of engagement with the banking firm provided it with a $2.5 million fee upon sale, even it it had nothing to do with finding the buyer. I guess the lead banker felt he should do something for the payment, so he graciously offered us a copy of the book on Scott Fetzer that his firm had prepared. With his customary tact, Charlie responded: “I’ll pay $2.5 million not to read it.

At Berkshire, our carefully-crafted acquisition strategy is simply to wait for the phone to ring. Happily, it sometimes does so, usually because a manager who sold to us earlier has recommended to a friend that he think about following suit.

Berkshire Annual Letter 1999 (Part 2)

When an acquisition takes place, there are two generally accepted accounting principles (GAAP) methods of recording the transaction.

In the “purchase” method, a goodwill account has to be established and subsequently written off against earnings. Payment can be made in either cash or stock.

…Continue reading » Acquisition Accounting

Superman Earnings

Analogy by Warren Buffett on boosting earnings via acquisitions.

At other companies, executives may devote themselves to pursuing acquisition possibilities with investment bankers, utilizing an auction process that has become standardized. In this exercise, the bankers prepare a “book” that makes me think of Superman comics of my youth. In the Wall Street version, a formerly mild-mannered company emerges from the investment bankers’ phone booth able to leap over competitors in a single bound and with earnings moving faster than a speeding bullet. Titillated by the book’s description of the acquiree’s powers, acquisition-hungry CEOs – Lois Lanes all, beneath their cool exteriors – promptly swoon.

What’s particularly entertaining in these books is the precision with which earnings are projected for many years ahead. If you ask the author-banker, however, what his own firm will earn next month, he will go into a protective crouch and tell you that business and markets are far too uncertain for him to venture a forecast.

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